Economic uncertainty in Europe and fear of a Greek default are turning people to buy gold bars and coins

German investors have piled into gold bars and coins in the first quarter of the year as a hedge against European Central Bank policy and the threat of a Greek default bringing down the eurozone.

Latest figures from the World Gold Council show that Germans increased their buying of gold coins and bars of bullion by 20pc to 32.2 tonnes in the last quarter, the highest rate of purchases seen in a year.

The strong buying of gold - which is traditionally seen by investors as a safe-haven asset – was seen across Europe amid growing uncertainty over central bank policy and the standoff between Athens and its creditors.

“This was the strongest start in Europe for gold coins and bars that we have seen since 2011,” Alistair Hewitt, head of market intelligence at the World Gold Council told The Telegraph. “German investors are fretting over the ECB, Greece and Ukraine.”

On the wider market, the World Gold Council revealed that total demand in the first quarter fell 1pc to 1,079 tonnes compared with the same period last year.

Currency Turmoil Makes Precious Metals Ownership A Necessity

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…)

Summary

What does the first two months of 2015 mean for precious metal?

Investors are now paying for the “privilege” of lending to broke governments.

Will the Fed chicken out on rate hikes?

The first two months of 2015 have seen turmoil in the currency markets extend from Russia and Ukraine to the heart of Europe.

“Central Banks Now Open 24/7 Fighting Currency Wars and Deflation,” blared a February 12th Bloomberg headline. Against this backdrop, precious metals have been on the rise in terms of all currencies except the Swiss franc and the U.S dollar.

In January, the Swiss National Bank shocked markets by announcing that it would de-link its currency from the euro. The move came one week ahead of the European Central Bank’s $1.1 trillion Quantitative Easing announcement. Swiss officials decided it would be too costly to keep accumulating depreciating euros in order to maintain the currency peg. The Swiss franc surged by the most ever in a single day.

With the exception of Switzerland, all other countries in Europe (and many others around the world) are trying to depreciate their currencies.

Since January 1, the following central banks have announced interest rate cuts or other monetary easing measures: European Central Bank, Reserve Bank of Australia, Reserve Bank of New Zealand, Monetary Authority of Singapore, and the central banks of India, Canada, Denmark, and Sweden.

The Royal Canadian Mint launched the newest release from its Canadian Birds of Prey 99.99% pure silver bullion coin series with a majestic tribute to the Red-Tailed Hawk. This iconic ruler of North American skies is dramatically portrayed on a 1 oz. bullion coin that is sure to appeal to a wide range of customers for both its theme and signature purity.

The Birds of Prey – Red-Tailed Hawk is 99.99% pure silver bullion coin has a theme whose appeal and relevance transcends borders and expected to shine a new light on the diversity of our investment products.”

The 2015-dated, “Red-Tailed Hawk” 99.99% pure silver bullion coin is the third of four coins in the Mint’s exciting biannual bullion series featuring Canadian birds of prey.

Its reverse design features a captivating illustration by acclaimed Canadian illustrator Emily Damstra of a Red-Tailed Hawk in descending upon it’s prey. This 99.99% pure silver coin is crafted with the Mint’s signature bullion finish is limited to only one million coins world-wide.

In keeping with a distribution model common to the world’s major issuers of bullion coins, the Mint does not sell precious metal investment products directly to the public. Interested buyers are encouraged to contact a reputable bullion dealer to order this new coin.

It Seems Like Hedge Funds Are Jumping Into The Gold Market

Summary

The popular narrative is that the gold market is currently quiet and dead and there is very little investor interest.

That is not supported by the large amounts of volume that we’re seeing in the gold mining and leveraged gold mining ETFs.

The volume has increased to the largest levels in history and it seems to be hedge funds who are getting into the market.

Since most of the interest seems to be on the short side this may provide a good opportunity for patient gold mining investors.

The dominant narrative in the gold market has been that investors have fled the sector in search of better returns in the rest of the markets as the Fed has stabilized the system. In other words, the gold bubble has popped and the last investor needs to shut off the lights when they are done.

Currency traders eye Swiss vote on gold holdings

A referendum that would force the Swiss central bank to hold a fifth of its assets in gold could rock foreign exchange markets, analysts have warned.

On the 30th November, voters in Switzerland will head to the polls to decide whether the Swiss National Bank (SNB) should boost its gold holdings and refrain from any further selling of Swiss gold.

Bloomberg | Bloomberg | Getty Images

The referendum, proposed by the ultra-conservative Swiss People’s party, will also require the bank to repatriate all Swiss gold holdings currently held outside of Switzerland if passed.

The ban on selling gold would go into effect immediately and the SNB would have five years to reach the 20 percent requirement.

Foreign exchange markets are likely to be most affected by the move. Three years ago the SNB pledged to ensure the country’s competitiveness by keeping the Swiss Franc at a set level at 1.20 francs per euro. Any move to bolster gold holdings could put this “floor” under pressure and will likely trigger further euro weakness – which would make Swiss exports more expensive.

“Investors could use the poll as an excuse to challenge the EUR/CHF floor and the market would then start to speculate on an SNB rate cut to negative interest rates, especially as short-term rates are lower in the euro zone than in Switzerland,” said senior currency strategist at Societe Generale, Sebastien Galy.

Over the five-year period, the SNB would have to sell part of its currency reserves, or theoretically print money to finance the gold purchases, Galy said.

“Currently this amounts to selling $68 billion, mainly by selling euro and dollars, to buy 1,783 tons of gold,” he added.

The central bank has said such measures would be detrimental to Switzerland as it would undermine the independence of the central bank and such large scale purchases of gold would prove very costly.

The latest polls showed 44 percent of respondents were in favour of the vote. Governing board member of the SNB Fritz Zurbruegg said he was taking the measures “extremely seriously” at a conference in Geneva last week.

Gold is sometimes a tricky asset to figure out. Traditionally, the yellow metal trends nicely in negative real-rate environments, whereby inflation is higher than nominal interest rates. The argument goes that negative real-rate environments result in money positioning into the metal as an inflation hedge given its historical behavior as a way of preserving wealth in the pre-fiat economic system.

Sometimes gold acts like a “risk on” asset which rallies with equities like the S&P 500 SPDR ETF SPY +0.37% . Sometimes, it rallies with Treasurys in a “risk off” period where behaviorally deflationary trades tend to do better. This makes the absolute price movement of gold — repped here by the SPDR Gold Trust ETF GLD +0.17% — somewhat difficult to predict because its behavior changes in different market regimes. This holds true independent of whether you view gold as an investment, trade or hedge. Contrast this changing behavior to that of more traditional sectors of the stock market like utilities, consumer staples and health care, which our equity-sector ATAC Beta Rotation Fund BROTX -0.35% can position fully into during periods of heightened volatility.

Where gold is perhaps most interesting, in my opinion, is in its relationship to black gold, oil. During volatile periods for equities, gold tends to do fairly well relative to oil. Interestingly, this behavior somewhat tracks the VIX index, which itself rises during heightened fear periods for the stock market.

Take a look below at the price ratio of gold ($GOLD) relative to light crude oil ($WTIC) in the reddish line, and the spot VIX index in black behind it. As a reminder, a rising price ratio means the numerator/gold is outperforming the denominator/oil. A falling ratio means underperformance.

A combination of a reflection and hedge against U.S. and world inflation.

A form of money or currency, accepted worldwide.

A store of value.

A protection and hiding place against economic and political world problems and uncertainties.

A contra investment against an overbought stock market, especially in a low-interest-rate environment. The market has been overbought to these levels only three times in history: 1929, 2000, and 2007. (Nobel prize winner Robert Schiller).

The deficits caused by governments’ excessive and wasteful spending, including those caused by wars since and including WWII, have always created screaming commentary similar to what we read today:

Just how is Washington and the nation going to cure the enormous deficits we have created? They are a serious percentage of our GNP and foreign governments are effectively in potential control of our country by way of their large investments made in our government bonds.

Our history shows we have solved this problem not by shrinking these deficits in actuality, but by reducing their percentage of our GDP and debasing our dollar in so doing. This has been done by reflating (see former prices): $0.17 per gallon of gas, $2.00 for a carton of cigarettes, $850 for a Chevrolet deluxe, and $15,000 for a 2,000-square-foot suburban home are just a few examples. Wages and income have kept pace with price inflation nearly on par.

SAN FRANCISCO (MarketWatch) —Silver has quietly scored double the percentage gains of gold this month, and prices for silver probably haven’t topped out for the year. “The real value of silver is far from being realized,” said Andrew Chanin, chief executive officer of PureFunds, which offers the PureFunds ISE Junior Silver ETF SILJ -2.05% .

Silver is priced as if it’s much more common than gold, but it may be much rarer than the price suggests, Chanin said. Given its antibacterial properties and ability to conduct heat and electricity, silver may also become even more important as an industrial metal, “causing a supply shortage.”

Out of 19 trading sessions this month, silver prices have fallen only three times, while gold prices posted declines for five of them. And while gold prices traded recently at just over a two-month high, silver tapped its highest in more than three months.

Year to date, gold has still outperformed but barely — up 10% versus silver’s 9% climb.

Analysts attribute silver’s recent gains to some safe-haven demand on the heels of the turmoil in Iraq. But they also said improving economic data helped raise the demand outlook for the metal.

Most of the upward move for silver was due to the increase in demand and this was fueled by improving economic data, which hit the tape early this week and last week in the U.S., said Naeem Aslam, chief market analyst at AvaTrade.